Mar. 16, 2022
Dear SEC, I am an investment advisor representative registered in the State of NJ and I would like to urge you to approve the conversion of Grayscale Bitcoin Trust (BTC) to an Exchange Traded Fund. Although I do believe that the cryptocurrency exchanges such at Coinbase, FTX, Paxos and similar companies should be regulated by the CFTC to the extent that they support the trading of digital assets such at Bitcoin and Ether that are almost certainly commodities, I do not believe that it is necessary that this regulatory structure be in place prior to approving BTC as an exchange traded fund. I believe no such requirement is in place for the physical trading of gold and yet there is a physical gold ETF. Since the SEC has approved exchange traded funds that hold cryptocurrency futures tied to the same digital assets traded on these spot exchanges, the work that the CFTC is doing to ensure there is no fraud on these exchanges should be sufficient to likewise approve a spot cryptocurrency ETF. It seems to me that approving a futures-based ETF where the future derives its value from the spot price traded on several cryptocurrency exchanges implicitly posits that the spot price may be relied upon as a valid and fairly discovered price. If there is doubt that this necessarily follows, then how was it that the SEC approved an ETF that is backed by futures whose settlement prices may or may not represent a valid and fair price for the underlying asset? I must assume that the SEC believes that the reference prices that serve to settle the futures contracts are valid prices and are fairly discovered. What else could prevent the SEC from approving the spot currency ETF? One might argue that holders of a spot cryptocurrency ETF might be at risk of loss through theft whereas holders of the futures-based cryptocurrency ETF are not similarly exposed. Although this might be technically true, it may also be true that the reference prices upon which the futures are based might also suffer a decline in price from the lack of market confidence that such a theft could generate. Another rebuttal to this risk of loss reason for denial is that other ETFs that are backed by physical assets such as gold or silver are subject to the same risk and yet those ETFs have been approved by the SEC. Lastly, I would like to point out that BTC already has world-class security measures in place to safeguard the digital assets contained in its digital wallets. The sheer size of assets invested in BTC and the fees paid on these assets to support these security measures should indicate the confidence that the marketplace has in BTC security measures. Approving a spot cryptocurrency-based ETF would afford all Americans the opportunity to own digital assets in a convenient security, similar to other citizens of modern, civilized and democratic countries such as Canada, to mention one. The longer we wait to approve a spot-based ETF, the farther behind we will fall in providing Americans an opportunity to participate in a market in its early stages of growth and the longer shareholders of BTC will have to suffer from share prices that do not reflect the underlying value of their assets because the trust cannot redeem shares. I urge you to approve the conversion of BTC to an ETF and then continue to push for a regulatory framework for cryptocurrency exchanges. The two need not be tied together. Matthew Morano, CFA